FIFO (first in, first out)
A matching method that treats the earliest contracts you bought as the first ones you sold. It is the common default for reconstructing cost basis when you trade the same market repeatedly.
When you buy at several prices and sell only some, FIFO decides which lots you sold, the oldest first. It keeps the calculation consistent and defensible, which matters because different matching choices can produce different gains on identical trades.
FIFO, first in first out, is an accounting method that assumes the first contracts you bought are the first ones you sell. When you hold several lots of the same market acquired at different prices, FIFO decides which lot's cost basis applies to a given sale, which in turn determines the gain or loss on that sale.
FIFO is the common default because it is simple and consistent. The alternative methods (such as specific identification) can sometimes optimize the timing of gains and losses, but they require you to designate lots at the time of sale and keep meticulous records. For most prediction-market traders, FIFO applied uniformly is the practical and defensible choice.
The method you choose affects the size and character of each realized gain, though across a full year the totals converge. Where it matters most is partial exits: if you sell only some of a position, FIFO pulls from your oldest, often cheapest, lots first, which can produce a larger realized gain on that sale than a different method would.
You buy 100 contracts at 30 cents, then 100 more at 50 cents, then sell 100. Under FIFO you are selling the first lot (30 cents), so a sale at 60 cents books a 30-cent gain per contract. A different method might match the 50-cent lot instead, booking only a 10-cent gain.
Frequently asked questions
What does FIFO mean for trading?
First in, first out: it assumes the earliest contracts you bought are the first ones sold, which sets the cost basis used to compute gain or loss on each sale.
Is FIFO required for Kalshi taxes?
It is a common, defensible default rather than a strict requirement. Other methods like specific identification exist but need lot-level designation and stricter records. Apply your chosen method consistently.
Does FIFO change my total annual gain?
Across a full year of closing positions the totals largely converge. The method mainly affects how gains and losses are split among individual sales, especially partial exits.